Government Regulators Vote to Rein in Credit Card Practices

Plan now for future impacts of tighter consumer credit, warns

SAN MATEO, Calif., Dec. 31, 2008 — Just as credit analysts announced that banks are considering pulling back consumers’ credit lines, government officials now have taken steps to require creditors to eliminate some rules relating to fees and interest charges.

These changes come because of unstable credit markets and concerns about people who are losing jobs or income and might be unable to repay credit card debts. Ethan Ewing, president of free online consumer credit portal, noted that credit card debt is an enormous burden for many people.

"Reduced credit card limits for millions of Americans have the possibility of hurting the American economy further in the short term, because credit cards are the second major source of liquidity after job income,"1 Ewing said. "The elimination of the fees and charges being proposed is good news for consumers, but because lenders are warning the changes could come with more credit restrictions, individuals might need to make some changes.

The new rules, acted on last week by a group of federal regulatory bodies, will take effect by July 2010. They restrict credit card companies’ ability to charge high fees under confusing terms. Cards no longer may use two-cycle billing, default interest rates (which raise rates based on late payment of any other bill), shorter payment periods or confusing allocation of payments to different balances, such as purchases and transfers. Specific dates and times payments are due and changes to accounts must be clearly communicated. As a result of these changes, credit card companies said, interest rates will rise for all borrowers, and they might offer additional restrictions to credit limits.

Threats of lower credit limits come just months after home equity lenders began to trim homeowners’ home equity credit lines in an effort to reduce exposure to debt. The combined news may be alarming for some Americans who rely on credit cards for emergency funds, Ewing said. Additionally, because one element of FICO credit scores is the difference between credit card balances and credit limits, consumers whose limits are lower could also face a drop in their credit scores.

"The good news is that, ultimately, these changes could have a positive impact on some individuals - and on the overall economy in the long run," Ewing pointed out. "Lower limits — and more controlled interest rates — will help avert excessive debt, as credit card spending is a significant risk factor for running into money problems." In 2008, 55 percent of credit card holders carried a balance on their cards rather than paying off the total every month, and the typical consumer has access to approximately $19,000 on all credit cards combined.2 Median household income last year in the United States was $50,233.3

Ewing suggested several actions for those concerned about lower credit limits:

  1. Budget to live within your means now. Credit cards should be used sparingly, to pay for necessary purchases that cannot conveniently or securely be paid in cash (including airline tickets, hotel stays, rental cars and online items), and that can be paid in full when the bill comes due. Make a spending plan that lays out categories of income and necessary expenses. This current economic recession is no time to be focused on luxuries. Learn more at the Budget Guide.
  2. Change lifestyle if necessary. "If your financial situation is so tight that you are thinking of paying routine expenses — like gas, groceries or utilities — with credit, change the situation before it is too late," Ewing urged. Commute by public transit, seek a second job or move to a less expensive home before you are forced to do so and ruin your credit history.
  3. Guard credit cards. Lower limits make fraud all the more dangerous. Be sure you have all credit cards in your possession (preferably in a safe place outside your wallet). Be cautious using cards online; be certain to use only secure sites. Do not reveal credit card numbers by phone unless you originated the call and know exactly to whom you are speaking. Review statements carefully to be sure all charges are accurate. Dispute any questionable transaction immediately, in writing, to avoid liability.
  4. Seek help if needed. If you are having a hard time making credit card payments or paying other obligations, get help. Consumers can contact their credit card issuers to request lower interest rates or "temporary hardship" status in the event of a temporary lapse in payments. For more serious debt, seek a reputable debt resolution firm (such as Freedom Financial Network) to help you manage your debt without getting into permanent trouble or facing damaging actions such as foreclosure, bankruptcy or loan default.

"Without a doubt, we are all dealing with the consequences of the credit markets’ extremely challenging environment," Ewing said. "But with caution and planning, each consumer can make the best possible choices to keep finances safe for the future."


Based in San Mateo, Calif., is a free one-stop portal where consumers can educate themselves about complex personal finance issues and comparison shop for products and services including credit cards, debt relief assistance, insurance, mortgages and other loans. As the online portal to Freedom Financial Network, LLC, the company has served more than 40,000 customers nationwide since 2002 while managing more than $1 billion in consumer debt. Its RSS feed is available at /press-releases/ holds the No. 257 spot on the Inc. 500 list for 2008, and the No. 3 spot on Entrepreneur Magazine’s Hot 100 list of the fastest-growing U.S. companies. also was named a finalist as "most innovative company" in the American Business Awards in 2008. Company co-founders and co-CEOs Andrew Housser and Brad Stroh were named to the Silicon Valley/San Jose Business Journal’s "40 Under 40" list in 2008, and are recipients of the Northern California Ernst & Young 2008 Entrepreneur of the Year Award.